RATING RATIONALE 23 November 2020

Darashaw & Company Private Limited

Brickwork Ratings reaffirms the ratings of bank loan facilities of Rs.650 Crs. and withdraws the rating of bank loan facilities of Rs. 230 Crs of Darashaw & Company Private Limited

Particulars:

Amount (Rs. Crs.) Rating* Facilities** Previous Present Tenure Previous (Sep, 2019) Present

Long BWR A-/Stable BWR A-/Stable 520.00 650.00 Fund Term Based Long BWR A-/Stable Withdrawn 230.00 0.00 Term

Total 750.00 650.00 Rs. Six Hundred Fifty Crs. Only/- *Please refer to BWR website www.brickworkratings.com/ for the definition of the ratings ​ ​ ** Details of Bank Loan Facilities/NCD/Bonds/Commercial Paper are provided in Annexure-I&II

RATING ACTION / OUTLOOK Brickwork Ratings (BWR) has reaffirmed the rating of Darashaw & Company Private Limited (DCPL or the company) based on the experience of its promoters, the group’s long track record, its stable financial performance and moderate business risk profile, and proven fund infusion capacity. The rating is, however, constrained by the impairment in investments, which may also affect the profitability over the near to to medium term and risks associated with market volatility. BWR has withdrawn the rating of facilities from Canara Bank of Rs 150 Crs and Andhra Bank of Rs 80 Crs based on the client’s request and no due certificate from banks/lenders. This is in line with BWR withdrawal policy.

The Stable outlook indicates a low likelihood of a rating change over the medium term. BWR believes that DCPL’s business risk profile will be maintained over the medium term.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA For arriving at its ratings, BWR has evaluated the risk profile of the Darashaw group on a consolidated basis and applied its rating methodology as detailed in the Rating Criteria below www.brickworkratings.com Page 1 of 8 ​ ​ ​

(hyperlinks provided at the end of this rationale). The consolidated financial includes financial performance of Darashaw & Company Private Limited, Darashaw Securities Private Limited and Darashaw & Company (Singapore) Pte Ltd

KEY COVENANTS OF THE INSTRUMENT/FACILITY RATED: NA

KEY RATING DRIVERS

Credit Strengths: ● Experienced promoters, long track record of group: The Darashaw group is a ​ ​ 94-years-old business with a prime broker status, being a key player in the retirement benefits segment. Since the inception of the business, the group has been promoted by the Mehta family. The Darashaw group consists of three entities, i.e., Darashaw & Company Private Limited, Darashaw Securities Private Limited and Darashaw and Darashaw & Company (Singapore) Pte Ltd. DCPL is a flagship company of the Darashaw groups, and the other two are the fully owned subsidiaries of DCPL. Currently, the entire business is being managed by the third generation family member Mr. Darashaw Keki Mehta. Mr. Darashaw has spent more than two decades in the industry growing the DCPL business. He is also supported by a professional management team having the experience of one business cycle

● Stable financial performance and moderate business risk profile: On a ​ consolidated basis, DCPL reported stable financial performance during FY20 with the total income of Rs. 2865.99 Crs, against Rs. 2028.95 Crs during FY19. The trading income increased to Rs. 2787.83 Crs during FY20, against Rs. 1924.85 Crs in FY19. The company earned an advisory, consulting and brokerage fee of Rs. 46.15 Crs in FY20, against Rs. 69.66 Crs in FY19. The company’s profitability slightly improved to Rs 1.11 Crs during FY20, against Rs. 0.27 Crs in FY19. The thin profitability was on account of the company’s impaired exposures In terms of business, DCPL participated in the issue of Rs. 26732 Crs during FY20 and Rs. 6314 Crs during H1FY21. Against this, DCPL did deals worth Rs. 1515 Crs (total 11 issues) during FY20 and Rs. 709 Crs (total 14 issues) during H1FY21. DCPL consolidate basis also holds Rs. 179.69 Crs worth of free stock, which it can liquidate at any time to generate liquidity.

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● Proven fund infusion capacity: As on 31 March 2020, the consolidated net worth ​ of the group stands at Rs. 180.58 Crs against Rs. 179.76 Crs as on 31 March 2019. The promoters have always supported the business across economic cycles. Promoters of the group are committed towards business growth as well as servicing the debt obligation in timely manners. As on 30 September 2020, the unsecured loans from promoters in the group stood at 218.87 Crs as interest-free unsecured loan to support the business. The group level gearing stood at 2.49 times as on 31 March 2020, against 2.30 times as on 31 March 2019.

Credit Risks: ​ ● Impairment of investments may impact the profitability: As on 30 September ​ 2020, of the total investments on the balance sheet of ~ Rs.272.45 crore, the group has 63.50% of its investments in default category rated instruments given its exposure on large distressed assets. Against this, the group had made provisions of Rs 13.10 Crs till 30 September 2020 and sold off Rs. 79.50 Crs . The group has planned to reduce the value of their investments/inventories out of cash accrual which may also impact their profitability over the medium term. The group’s ability to manage profitability and also improve their investment portfolio quality will remain a key monitorable

● Risk associated with market volatility and holding securities for longer term: The groups’s business activities in the debt capital market are exposed to economic cyclicality and macroeconomic indicators, such as, the movement in the interest rate, GDP, growth and inflation, wherein any adverse movement in either of the factors will result in volatility in the business performance, considering that its income depends on the activity in debt market issues. During the process of subscribing and down selling, the group at times holds certain securities for a long/short term. In case the value of investments reduces, or it faces volatility in interest rates, it also faces a risk of losses.

RATING SENSITIVITIES

Positive: A significant improvement in the financial risk profile and market share of the ​ ​ group, including a substantial increase in revenue and profitability while maintaining gearing, will be a rating positive.

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Negative: A significant deterioration in business volumes or the earning profile, and an ​ ​ increase in the gearing will be a rating negative.

LIQUIDITY INDICATORS: ADEQUATE As on 31 October 2020, on a consolidated level, the group had liquidity of Rs.179.69 Crs, in the form of free stocks against no stipulated debt obligation during 1 December 2020 to 31 March 2021. The group also had undisbursed sanctions of over Rs.150 Crs as on 31 October 2020.

Coronavirus disease (COVID-19), declared a pandemic by the World Health Organisation ​ (WHO), has become a full-blown crisis globally, including in India. As a containment measure, the Indian Government had announced a 21-day nationwide lockdown on 24 March 2020, which was subsequently extended until 31 May 2020. As per BWR, financial institutions, mainly those lending to the retail low-income borrower segments, could be the most impacted. The 6-month moratorium announced by the Reserve Bank of India on interest and principal on bank debt has provided some cushion to the lending community to realign its collection machinery and operations during this period. However, lenders' ability to ensure credit discipline among borrowers and to collect accumulated interest and principal dues on a timely basis will be a key monitorable. BWR is actively engaging with its clients on a continuous basis and taking updates on the impact on its operations and liquidity situation. BWR will take appropriate rating actions as and when it deems necessary and will publish the same.

COMPANY PROFILE Darashaw & Company Pvt. Ltd. (DCPL) is promoted by the Mehta family, was incorporated in 1926 and was the first broker to the RBI. DCPL is a SEBI-accredited Merchant Banker Category-I, Mutual Fund Advisor and Portfolio Manager, headquartered in Mumbai, and spans 12 cities in India, with over 250 professionals. It is also a member of various stock exchanges in India. DCPL has two subsidiaries, namely, Darashaw & Company (Singapore) Pte Ltd and Darashaw Securities Pvt. Ltd.

The businesses that DCPL deals with includes Debt Intermediation, Investment Banking, Retirement Services, Infrastructure & Financial Advisory, and Equity & Wealth Management. The company has an internal policy, which, inter alia, prescribes safety, liquidity and return as the main parameters for evaluating deals. All investment decisions are taken by an investment committee of six members, which is well-supported by the company’s strong research team.

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KEY FINANCIAL INDICATORS

Key Financial Indicators Units FY19 FY20 Result Type Audited Audited Total Income Rs in Crs 2028.95 2865.99 Operating Profit Rs in Crs 38.55 32.17 Profit After tax Rs in Crs 0.27 1.11 Networth Rs in Crs 179.76 180.58 Total Debt Rs in Crs 413.36 449.93 Gearing Times 2.30 2.49

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY IF ANY: NA

RATING HISTORY FOR THE PREVIOUS THREE YEARS [including withdrawal and suspended]

Facilities Current Rating Rating History

Tenure Amount 30 Aug (Long Term/Short (Rs.Crs. Rating 30 Sep 19 21 Apr 17 18 Term) )

Fund BWR BWR BWR BWR Long Term 150 Based A-/Stable A-/Stable A-/Stable A-/Stable

Fund BWR BWR BWR BWR Long Term 75 Based A-/Stable A-/Stable A-/Stable A-/Stable

Fund BWR BWR Long Term 345 - - Based A-/Stable A-/Stable

Fund BWR Long Term 80 - - - Based A-/Stable

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Fund BWR BWR BWR Long Term 230 Withdrawn Based A-/Stable A-/Stable A-/Stable

Fund Withdrawn BWR BWR Long Term - - Based A-/Stable A-/Stable

Fund Withdrawn BWR BWR Long Term - - Based A-/Stable A-/Stable

Withdrawn BWR A- BWR Fund Long Term - - (SO)/Stab A-(SO)/St Based le able

Total 650* Rs. Six Hundred Fifty Crs. Only * Total is excluding withdrawal amount Rs. 230 Crs

COMPLEXITY LEVELS OF THE INSTRUMENTS

For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf ​

Hyperlink/Reference to applicable Criteria

● General Criteria

● Approach to Financial Ratios

● Banks & Financial Institutions

Analytical Contacts

Praful Kumar Dave Vydianathan Ramaswamy Senior Rating Analyst Director & Head – Financial Sector Ratings +91 22 6745 6638 +91 22 6745 6660 [email protected] [email protected]

1-860-425-2742 I [email protected]

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Darashaw & Company Private Limited ANNEXURE I Details of Bank Loan Facilities rated by BWR

Sl. No. Name of the Bank Type of Long Term Short Term Total Facilities (Rs. Crs.) (Rs. Crs.) (Rs. Crs.)

1 Bank of Maharashtra Cash Credit 150.00 - 150.00

2 - Proposed 500.00 - 500.00

Total Rupees Six Hundred Fifty Crs. only 650.00

ANNEXURE II INSTRUMENT (NCD/Bonds/CP/FDs) DETAILS: NA

ANNEXURE III List of entities consolidated

Name of Entity % Extent of Rationale for ownership consolidation consolidation

Darashaw Securities Private Limited 100% 100% Subsidiary

Darashaw & Co. (Singapore) Pte Ltd 100% 100% Subsidiary

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About Brickwork Ratings : Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] ​ registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and www.brickworkratings.com Page 7 of 8 ​ ​ ​

other structured / credit enhanced debt instruments, Security Receipts, Securitisation Products, Municipal Bonds, etc. BWR has rated over 11,400 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partners. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

DISCLAIMER Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.

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